39% of Saudi consumers maintain shopping budgets while 32% plan for cuts: AlixPartners

Karl Nader, Partner & Managing Director of AlixPartners

As much as 39% of Saudi consumers plan to maintain in 2024 similar shopping budgets as the previous year. Meanwhile, another 32% intend to reduce spending this year, down from 37% in 2023, Karl Nader, Partner & Managing Director of AlixPartners, told Argaam in an interview.

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On the sidelines of the Retail Leaders Circle (RLC) MENA Summit, Nader pointed out that lower-income consumers tend to tighten budgets, while higher-income groups anticipate increased spending.

Saudi consumers show great interest in shopping technologies and convenient solutions, emphasizing the need for retailers to invest in artificial intelligence (AI) tools for research and innovative delivery and payment options to meet the evolving consumer expectations, he added.

Nader highlighted that the future of retail trade in Saudi Arabia will be positive, featuring a number of opportunities and challenges. Seizing opportunities in the e-commerce field, concluding strategic partnerships, modernizing channels, and ensuring the adoption of new models will enhance growth and achieve excellence, he further stated.

The interview in details:

1. Can you elaborate on the key trends shaping the Saudi retail landscape in 2024?

In 2024, the Saudi retail landscape is defined by a dynamic interplay of economic growth, shifting consumer behaviors, and global influences.

- Consumer pressure points: Tightening of consumer spending driven by an increase in the cost of living and significant competition from other emerging sectors on a share in consumption.

- Retailers will go back to basics and focus on fundamentals to drive efficiencies across businesses and address the increased cost of doing business.

- Physical stores are still not dead – Retailers will continue to expand their store network.

- The rise of e-commerce is ongoing.

- Retailers will continue to disrupt their business model and innovate to differentiate their business and drive traffic to their physical or digital stores.

- The outlook is positive, but retailers will need to navigate new norms to succeed in 2024.

2. How does the Saudi consumer spending in 2024 compare to global trends, and what factors contribute to variations?

The consumer spending landscape in Saudi Arabia is influenced by various factors amidst global economic uncertainties. Despite these challenges, the Saudi consumer spending will follow similar patterns to 2023 – It will be tight but polarized.

The increased cost of living, especially in household expenses like utilities and education, alongside stagnant salary growth, present significant challenges. Moreover, the rise in consumer debt and mortgage payments, worsened by higher interest rates, further burdens household finances. Intense competition for consumer spending, driven by events such as Riyadh seasons, entertainment events (boxing matches, concerts, etc.), and the growing number of restaurants, adds to the constrained consumer spending.

Consequently, consumers are adopting a more cautious approach to spending, tightening their budgets in response to economic pressures.

Despite these challenges, our recent Consumer Priorities survey revealed a more optimistic outlook in Saudi Arabia than the global average (excluding groceries from our analysis). A notable portion of Saudi consumers—39% compared to 34% last year—plan to maintain similar shopping budgets as the previous year. Conversely, 32% intend to reduce spending, down from 37% last year.

This deviation is further pronounced when examining spending patterns across different income groups. Lower-income consumers tend to tighten budgets, while higher-income groups anticipate increased spending. Notably, age plays a significant role, with individuals aged 18–44 years old leading the charge in elevated spending across various segments.

Understanding these nuanced dynamics of consumer spending in Saudi Arabia allows businesses to tailor their strategies to meet evolving consumer preferences and effectively navigate the challenges posed by the economic landscape.

3. In navigating disruptions in the Saudi/Middle East retail sector, what strategies have shown particular effectiveness?

When it comes to navigating disruptions in the Saudi retail sector, strategic agility and a customer-centric approach are paramount.

Driving affordability for consumers is key to success in the current Saudi retail environment. This can be done by increasing the share of more affordable ranges such as private-label or entry-price products, besides investments in pricing and promotions.

Helping consumers through the adoption of Buy Now, Pay Later (BNPL) options has proven effective in maintaining consumer interest, particularly for product categories with high-ticket items.

Additionally, leveraging technology, notably generative AI, enhances the online purchasing experience. Saudi consumers show a keen interest in shopping technologies and convenient solutions, emphasizing the need for retailers to invest in AI tools for research and innovative delivery and payment options to meet the evolving consumer expectations.

Going forward, we expect to see more collaborations and ventures between retailers, and also between retailers and tech companies. For example, eXtra signed an agreement to manage the electronics unit in Panda stores.

At the same time, it is also important to maintain lean practices while reinvesting in enhancing the consumer experience and sustaining a focus on retail basics such as supply chain optimization and effective inventory management to successfully navigate disruptive headwinds. At AlixPartners, we believe integrating these strategies is key to navigating disruptions and forging ahead in the dynamic Saudi retail market.

4. From AlixPartners' perspective, what opportunities and challenges do you foresee for businesses in the Saudi retail market this year?

In terms of opportunities, the outlook appears promising, largely propelled by the ambitious goals outlined in the Saudi Vision 2030. With the ongoing developments fueling economic expansion, businesses have ample opportunities for expansion and diversification.

Moreover, Saudi consumers are highly connected and spend a significant amount of time online, presenting businesses with the chance to engage and influence purchasing decisions through digital channels. The rise of social selling further opens up avenues for businesses to tap into changing consumption patterns and connect with consumers in innovative ways.

However, alongside these opportunities come several challenges. The high cost of doing business in the region poses a major hurdle for retailers, necessitating a strong focus on operational efficiency and cost management strategies.

Furthermore, industry disruption is rapidly evolving skill requirements, with 85% of Middle East executives experiencing higher rates of skill obsolescence compared to their global counterparts. This figure markedly exceeds the global average of 60%, underscoring the pressing need for businesses to prioritize investments in workforce development and upskilling initiatives to ensure that businesses remain competitive in the evolving landscape.

5. Are there specific industries within the Saudi retail sector that are experiencing notable shifts or transformations?

Despite economic pressures, consumer spending remains resilient in the grocery sector. It is crucial for retailers to innovate continuously to maintain relevance and affordability in the face of intensifying competition. This calls for strategies that not only address cost concerns but also cater to the evolving consumer preferences and behaviors.

The fashion sector is also experiencing notable challenges, particularly due to fierce competition from cross-border retail and rapidly changing consumer preferences.

Franchise conglomerates operate aging brands stuck in the middle within aging malls. These players must embrace disruption to stay relevant. An interesting example in the making is Cenomi Group’s partnership with Trendyol, which aims to shake up the Saudi fashion e-commerce scene. While the outcome remains to be seen, it highlights the need for bold new models.

To thrive in this landscape, local retailers must adapt swiftly, embracing opportunities in e-commerce and forging strategic partnerships to drive growth and differentiate themselves in the market.

Overall, each industry within the Saudi retail sector presents its own set of challenges and opportunities. Success in navigating these dynamics requires tailored strategies that are agile, innovative, and responsive to the evolving market landscape. At AlixPartners, we are committed to helping businesses in the Saudi retail sector navigate these shifts effectively and capitalize on the opportunities that lie ahead.